Business confidence in July rose to the highest level since the survey began in 2012, amid growing optimism that the new government will be able to revive the economy and stimulate the business environment.
The MNI India Business Indicator rose to 70.0 in July from 69.2 in June, led by increased optimism among construction and service sector companies. Infrastructure is a key focus of the new government’s plan for turning the economy around and sentiment among our construction companies rose at the fastest pace in nine months.
While overall business conditions increased, probably in a wave of Modi optimism, other key indicators in the report declined in July. Production, New Orders, Export Orders and Employment all fell between June and July, although they remained in expansion.
Having faced spiralling raw material costs over the past year, price pressures eased further with the Input Prices Indicator hitting a record low in July. Businesses were also able to pass on this price reduction to their customers by charging lower prices for their goods and services. Companies, however, were apprehensive about prices in the next three months as they feared that a poor monsoon and violence in Iraq will have an upward impact on food and fuel prices.
Companies seemingly think that the Reserve Bank of India is unlikely to hike interest rates further, with both current conditions and future expectations for the interest rates they pay falling in July.
Commenting on the latest survey, Chief Economist of MNI Indicators Philip Uglow said, “While general business confidence hit a record level in July, otherkey metrics in the report pointed to a slowdown in July, although remained firm. In spite of a ratherlacklustre budget from the new government, our panel of companies still remain optimistic that Prime Minister Modi will be able to deliver on growth.”
“Good news for companies was a further easing in price pressures which have plagued businesses over the past year. While there are dangers of renewed upward pressure from a poor monsoon or the volatile situation in the middle-east, continued weakening may open the door for the central bank to ease policy later in the year.”